Let us begin with the last item. Amartya Sen the Nobel prize winning economist with deep humanist convictions whose course on theories of value and distribution I followed while I was a grad student at the LSE has written an excellent article published June 5, in the New Statesman that grows out of a speech he gave to the Keynes circle at the Charleston festival in Firle East Sussex close to where Keynes wrote much of his General Theory and his friends Vanessa Bell and Duncan Grant painted and Bloomsbury bloomed in which he demolishes the European and I regret to say Québec obsession with austerity. In so doing Sen who is a very rational moderate pragmatic voice in economics with an outstanding intellect has reminded the political establishment that they are repeating almost all of the errors of the 1930s. It needs apparently to be often repeated austerity is the worst policy to be chosen following a sharp business cycle downturn and financial panic and crash. As he puts it: Turning to the management of debts, suddenly the idea of austerity as a way out for the depressed and heavily indebted economy became the dominant priority of the financial leaders of Europe Those with an interest in history could easily see in this a reminder of the days of the Great Depression of the 1930s when cutting public expenditures seemed like a solution, rather than a problem. This is of course where Keynes made his definite contribution in his classic work the General Theory in 1936.Keynes ushered in the basic understanding that demand is important as a determinant of economic activity, and that expanding rather than cutting public expenditure may do a much better job of expanding supply and activity in an economy with unused capacity and idle labour.Austerity could do little, since a reduction of public expenditures adds to the inadequacy of private incomes and market demands , thereby tending to put even more people out of work. Of course I have been arguing Keynes is largely correct for years and I have joined the chorus of voices that includes two other Nobel prize winning economists Joseph Stiglitz and Paul Krugman and a large number of other leading Keynesians and post Keynesians who have gone to great lengths to explain why austerity is the wrong policy, how and why it is so damaging and how dangerous it is for both economic recovery and political stability. But as Krugman has pointed out it is now somehow fashionable for the very establishment that brought us the worst crash, crisis and recession since the great depression to repeat their totally unscientific assertion that somehow austerity is the right policy and that it will work to restore prosperity by lowering real wages through deliberately prolonged unemployment. The policy has been shown not to work. The last time it was used it led to the prolonging of the great depression, the rise of Hitler and fascism and the Second World War. The current high unemployment in Europe and the crisis in Greece where unemployment is 25 % are facts on the ground which refute the claims of the classical economists whose advice the neo-liberal politicians seem to be following. Sen points out how profound the mess that the financial sector and its allies in government have created in Europe. A similar mess was created in the United States and to a more limited degree in Canada but fortunately here the progressive influence of Barack Obama constrained as it was by the political weight of the Republicans and the Democratic party’s own fiscal conservatives was sufficient to implement a stimulus program which actually worked to reverse some of the damage. Canadian policy was similarly constrained but for a period of time the Harper Conservatives initially did the right Keynesian thing despite their own preference for fiscal conservatism. Hence the latest data on U.S. unemployment shows a rising participation rate , an above expectations level of new jobs created some 288000 last month and a significant decline in the broadly defined measure of unemployment to 10.6 % versus the headline rate of of 5.5 %. Not a perfect picture but a much improved one in comparison with the situation that prevails in Europe where France is still stuck in high unemployment the eurozone overall rate is still very elevated at 11.1% and the Greek rate is 25.4 % after years of imposed austerity. The rate for the first quarter in Greece is 26.6 %. Youth unemployment in Greece is more than double this rate.
Other recent unemployment rates according to Eurostat include Germany 4.7 %; UK 5.4%;Poland 7.9%; Belgium 8.5 %Ireland 9.7 %; France 10.5 %; Italy 12.4 %; Portugal 13 %; Spain 22.% ) The Greek situation may be closer to a temporary compromise resolution. But the stubborn insistence of the EU, the IMF and The European central bank on further irrational counter- productive austerity is a major stumbling block to a solution. Meanwhile Japan whose debt to GDP ratio is over 200 % and has a policy of negative interest rates has just registered 3.9 % growth in its GDP. Its rate of unemployment is 3.3 % .